From: Robert E. Rutkowski
Brent J. Fields, Secretary
In March, Americans for Financial Reform (“AFR”) commented on the above-referenced proposed rule (the “Proposed Rule”) issued by the Securities and Exchange Commission (the “Commission” or “SEC”). AFR submitted the below supplementary letter as a comment on the July 28th letter submitted by the Investment Company Institute (“ICI Letter”) and the SEC staff memorandum of November 1st (“Staff Memorandum”) that appears to respond to issues raised in the ICI letter.
I am deeply concerned that the ICI Letter lays out a set of changes to the Proposed Rule which would effectively negate the derivatives exposure limits in the rule and render them useless as a tool for controlling speculative leverage at registered funds, as is required by the 1940 Act.
In considering speculative leverage and asset coverage, the Commission must act to limit absolute risk. It is absolute changes in fund valuation that create the difficulty in meeting redemption demands. Relative risks are one input in determining the level of absolute risk that may exist, but both the need to protect investors and the clear mandate in the 1940 Act require the Commission to place its primary focus on limiting absolute risks emerging from derivatives. This will not happen if the effective limit on derivatives exposure is increased as recommended by the ICI.
Re: Full letter:
Thank you for the opportunity to bring these remarks to your attention.